BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 2 (De La Torre) Hearing Date: 8/27/2009 Amended: 8/17/2009 Consultant: Katie Johnson Policy Vote: Health 6-4 Judiciary 3-2 _________________________________________________________________ ____ BILL SUMMARY: AB 2 would establish requirements on health care service plans and health insurers related to individual health insurance application forms, medical underwriting, and notices and disclosures of rights and responsibilities. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2009-10 2010-11 2011-12 Fund CDI regulations, $60 $100 $100 Special* question pool maintenance DMHC regulations, filings, $500 - $1,700 $1,000 - $3,400$135Special** enforcement, independent review contract *Insurance Fund **Managed Care Fund _________________________________________________________________ ____ STAFF COMMENTS: SUSPENSE FILE. Existing law provides for the regulation of health care service plans by the Department of Managed Health Care (DMHC) and of health insurers by the California Department of Insurance (CDI). Existing law prohibits health plans and insurers from engaging in "post-claims" underwriting, defined to mean the rescinding, canceling, or limiting of a plan contract or insurance policy due to the plan's or insurer's failure to complete medical underwriting and resolve all reasonable questions relative to an application for coverage before issuing the contract or policy. For health care service plans regulated by DMHC, the prohibition on post-claims underwriting does not limit a plan's remedies upon a showing of willful misrepresentation. DMHC and CDI would need significant resources to comply with these provisions. Costs to promulgate regulations jointly, develop and contract for independent review services, develop standardized application questions, receive and review applications, and to otherwise implement and enforce these provisions would be approximately $100,000 annually for CDI and $1,000,000 - $3,400,000 in start-up costs and $135,000 ongoing for DMHC. It is unknown how many cancellations and rescissions health plans and insurers would pursue annually. In recent years, both DMHC and CDI have taken significant regulatory action to levy penalties on plans and insurers who engaged in unlawful post-claims underwriting. Page 2 AB 2 (De La Torre) This bill would exempt health care service plan contracts for coverage issued under Medi-Cal, the Healthy Families Program, the Access for Infants and Mothers program, the federal Medicare program, and dental plans. Specifically, this bill would: 1) require DMHC and CDI to jointly establish regulations that set standard information and health history questions that would be used by all health plans and insurers commencing six months after their adoption; 2) require individual health plans and insurance applications to be reviewed and approved by DMHC and CDI before they may be used on and after January 1, 2011; 3) require health plans and insurers to complete medical underwriting prior to issuing a contract or policy and to adopt and implement written medical underwriting policies and procedures as specified; 4) require health plans and insurers to file their medical underwriting policies and procedures with DMHC or CDI on or before January 1, 2011; 5) allow an applicant 30 days to review his or her application and correct any errors; 6) prohibit a health plan or insurer from rescinding an issued individual health care contract or individual insurance policy, as specified; 7) provide that an enrollment or individual policy may be canceled or not renewed due failure to pay the required charge for coverage; 8) permit the health plan or insurer to investigate any potential omissions or alleged misrepresented material; 9) commencing January 1, 2011, establish independent review processes in DMHC and CDI for the purpose of reviewing proposed rescissions or cancellations of contracts or policies; 10) a health plan or insurer must continue to authorize and provide all medically necessary health care services until the effective date of cancellation or rescission; 11) require that all health plan and insurer decisions to cancel or rescind a health plan contract or insurance policy be reviewed by the independent review organization unless the enrollee or insured opts out of the independent review process; 12) require a health plan or insurer to prominently display information concerning the right of an enrollee or insured to an automatic independent review in the cases where a plan or insurer has decided to pursue cancellation or rescission of a health plan contract or insurance policy; 13) require DMHC and CDI to expeditiously review independent review requests and immediately notify the enrollee or subscriber or insured or policyholder, in writing, about the independent review process; 14) require the independent review organization to conduct the review as specified; 15) require DMHC and CDI on or before January 1, 2011, to contract with one or more independent organizations in the state to conduct independent reviews of proposed health plan contract or insurance policy cancellations and rescissions; Page 3 AB 2 (De La Torre) 16) require the director of DMHC and the commissioner of CDI to immediately adopt the determination of the independent review organization and to promptly issue a written decision to the parties involved in the review; 17) independent review organization decisions may be made available to the public upon request, after DMHC and CDI have removed the names of the parties and complying with applicable privacy laws; 18) permit DMHC and CDI to assess an administrative penalty of not less than $5,000 on a health plan or insurer that engages in any conduct that would prolong the independent review process; 19) provide that DMHC penalties would be deposited into the Managed Care Administrative Fines and Penalties Fund and that CDI penalties would be deposited in the Major Risk Medical Insurance Fund; 20) require DMHC and CDI to perform annual audits of independent review cases; 21) require that the costs of the independent review process be borne by the affected health plan or health insurer; 22) require that on and after January 1, 2010, every health plan and insurer would annually report to DMHC and CDI, respectively, the total number of individual health plan contracts and health insurance policies issued, the total number of contracts and policies that the plan or insurer initiated or completed a cancellation or rescission; 23) require DMHC and CDI, on or before March 31, 2010, and annually thereafter, to publish information filed pursuant to these provisions on their websites. AB 1945 (De La Torre) of 2008 was similar to this bill. It was vetoed by the Governor for the following reasons: "Unfortunately, the provisions of this bill will only increase costs and further restrict access for over 2 million Californians that currently obtain coverage in the individual market. My administration proposed comprehensive legislation to address this problem. In particular, my proposal contained several strong consumer protections that this bill fails to address. My proposal established a standard application to remove any possibility of plans using different health questions to disadvantage applicants. This bill does not contain that protection. My proposal required agents and brokers to sign under penalty of perjury that they had not altered an applicant's answers. Penalties were levied if they engaged in this unscrupulous behavior. This bill does not contain that protection. My proposal clearly outlined the rules that plans and insurers had to follow when considering whether to offer a contract to an applicant. This bill does not contain that protection. My proposal didn't allow plans to rescind or cancel if a doctor failed to inform a patient of a medical condition. This bill does not contain that protection. My proposal contained a two-year lookback protection that prevented plans from rescinding or cancelling after two years. This bill does not contain that protection. My proposal protected family members and required coverage to be continued without additional underwriting or increase in premiums. This bill does not contain that protection. This bill was written by the attorneys that stand to benefit from its provisions. In rushing to protect a right to litigate, the proponents failed to consider the real consumer protections that are needed."